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Future imperfect, as cars and bike companies brace for repo rate effect

Sales of cars and bikes last month show a marginal increase over July 2021

automobiles-india-reuters Representative image | Reuters

Future imperfect tense. In a way it describes the state of turmoil in India’s automobile industry. Its woes, which predates the pandemic, is a cup of no cheer that overfloweth since then, thanks to reasons ranging from the downturn in the economy, the lockdown, supply chain shortages and now, persistent inflation and repo rate hikes.

Sales of cars and bikes last month show a marginal increase over July 2021, but that’s hardly any comfort—entry-level hatchbacks and commuter bikes and scooters, the bread and butter of the industry, have not recovered to their previous highs in many years.

“Market for entry-level passenger cars, two-wheelers and three-wheelers are yet too recover,” said Rajesh Menon, director general of the Society of Indian Automobile Manufacturers (SIAM). “Sales of two-wheelers in July 2022 are still below July 2016 numbers (while) sales of three-wheelers are still below July 2006 numbers.”

While the recovery of automobile sales since the pandemic has been in fits and spurts—going up right after lockdown phases and during the festive period but tanking in most other months—what is worrying the industry is the host of collateral damages. Supply chain mismatch following the re-opening after Covid lockdowns and the global semiconductor shortage has led to production disruption at many leading Indian auto giants. The latest trouble has come in the form of inflation, and the three rounds of repo rate that the Reserve Bank has unleashed to combat it.

“Third hike in repo-rates in a row to rein in high inflation will make auto loans costlier, making it more difficult for entry-level vehicles to recover,” pointed out Menon.

Domestic sales of cars last month was 1.43 lakh, compared to 1.3 lakh in July last year, and that of bikes at 17.7 lakh, just 70,000 higher than the previous year. However, the devil is in the details. Entry-level small cars, which once dominated the auto scene in India are in deep decline. Sales last month of above 24,000 last month is way lower than the nearly 30,000 in July 2021—and that was when this perceptible decline had already started.

With the monsoon season traditionally considered to be a dull sales period, the industry will be waiting with bated breath to see how the festive season, which starts by the end of this month with Ganesh Chaturthi followed by Onam and peaks with Diwali in the autumn, will play out. A host of new launches, mostly in the SUV category, will also be hitting the dealerships by then.

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